Dollar Destruction & Loss of Affordability

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Heritage’s EJ Antoni recently pointed out “cumulative inflation since Jan 2021 is between 23.6% and 27.1%, depending on which index we’re using.” These are big numbers that have negative consequences on real people. And these are just the government numbers. If we look at Truflation, they are reporting the compounded inflation since January 2020 is just under 30%. For the approximately 50% of Americans who hold 100% of their assets in US dollars, this is devastating debasement of their savings. The Fed’s own data confirms this problem. The report M2 money supply has tripled since 2008 and purchasing power of the dollar is down 38% since 2008. The average American’s savings has become a melting ice cube sitting in the sun on a hot summer day. But compounded inflation and loss of purchasing power doesn’t tell the full story. Nominal wage growth in the US has been impressive over the last half decade. There is more money sloshing around the system and some of it finds its way into the consumer’s pockets. EJ goes on to show the average American’s weekly paycheck can buy 3% less goods today compared to January 2021. The inflation story has been widely covered, but the acceleration in wages has been largely ignored. The problem is that inflation creates second and third-order effects that eat away at an economy and a society. Home affordability is one good example. Home prices have been increasing at a faster pace than wages, so we are seeing the average American’s ability to buy a home evaporate before our eyes. When you have people falling further behind, they start to lose hope. When people lose hope, they become bigger risk takers. Why not? What do they have to lose? Nothing really, right? This is why we are witnessing an explosion in sports gambling, meme coin trading, and other risky investing behaviors. So what is the anecdote? There is something called the Success Sequence that seems to have stood the test of time. The sequence is very simple: graduate from high school, get a full-time job, get married before you have kids. If someone can do that, they significantly increase their odds of avoiding economic destruction or poverty. This may seem simple for many of you, but we forget how many Americans end up following a different path. I share this reminder because we are living through a dollar debasement crisis, while watching commodities surge higher in a spectacular bull market. Creative Planning’s Charlie Bilello show s: Sulfur: +67% Jet Fuel: +66% Urea: +51% Diesel: +50% Heating Oil: +40% WTI Crude Oil: +37% European Natural Gas: +34% Gasoline: +32% Fertilizer: +31% Brent Crude Oil: +31% Coal: +14% Palm Oil: +10% Iron Ore: +7% Rice: +4% S&P 500: +1% $VIX: -8% Commodity investors are enjoying the financial returns attached to this bull market. The average American is bracing for the negative impact from the same price appreciation. The only thing that can really save the economy is an economic explosion driven by technological innovation and led by the private sector. We are seeing the early signs of this from the AI and robotics industry. We are going to need other industries like space, defense, biotech, and others to deliver deflationary pressures on the economy as well. The US government is never going to stop printing money. We spent over $100 billion on interest payments for the national debt last month. That is billion with a “B” just last month. So our best hope is to grow our way out of this problem. Accelerate. Accelerate. Accelerate. It can be done. We just have to let our entrepreneurs and technologists do their thing. Have a great day. I will talk to you next time. - Anthony J. 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